The State of the Trend

Last week the expectation was that the markets need to consolidate their gains
from the last couple of weeks, and that's what happened. On Friday the SP500
closed exactly in the middle of it's weekly trading range.

We also mentioned that the character of the market changed recently. That
conclusion was based on the chart below:

The intensity of bullish sentiment increased dramatically after October 7th,
and has since moved into the upper half of its range. Until this changes again,
one has to avoid getting too bearish on the market.

MF Global, however, taught us that getting overly bullish too early can have
disastrous consequences. And with Italy more prominent on the radar screen,
there are no signs that the turmoil in Europe is coming to an end.

Considering the change in bullish sentiment, against the backdrop of an unresolved
European financial crisis which threatens world markets, it should come as
no surprise that both the bullish and bearish scenarios outlined last month
are still alive. The chart below shows that we are half-way through the forecasted
consolidation period: